Up, Down, Up, Down, it seems like the markets are more volatile, right?

There’s no shortage of reasons to be concerned – Inflation, Federal Reserve Interest rate hikes, geopolitical issues, federal deficit ceiling, banking chaos…

Yet in the face of all these concerns the S&P 500 index was up over 7% in the first quarter this year.

Counterintuitive right? Let me explain…

I believe the biggest impact to the dramatic market decline in 2022 was rising interest rates.

See? They’re inversely correlated – interest rates go up and the market declines. It’s now over one year since these interest rates increases began and we think the end of these increases is near. While inflation is still above the Federal Reserve’s target of 2% it is declining. The cumulative impact is now being reflected in slowing inflationary data.

Therefore if the biggest correlation to the market decline was rising interest rates and we think we are closer to the end it allows the markets to heal and stabilize. This is not a forecast that the markets will rally significantly higher in the short term or the volatility is completely behind us, but that I believe the investing environment will be constructively better as we move through the year.

We do expect this to be a year of transition to slower growth from the prior couple of years. We also expect the recession word to be used quite a bit as we transition into slower growth. But we do not expect a recession in the traditional sense, with unemployment jumping to 7, 8, 9%. The employment market remains tight and we expect to remain tight, keeping the unemployment rate below 5%.

This view of slower growth, weaking demand is consistent with our view that these factors will allow the Federal Reserve to slow or stop the pace of interest rate increases.

As always we value the trust you have placed in us and allowing us to guide you thru your personal and financial journeys.

 

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